Thursday, November 1, 2007

Where Cash Is Yielding Big Time

IN THE MORE THAN 35 YEARS SHE has surveyed the investing scene, Susan Byrne has displayed an uncommon ability to identify emerging themes and pick the stocks that would benefit the most from them. For almost 25 of those years, she has been at the helm of Dallas-based Westwood Holdings Group, which now boasts $7.7 billion in assets and the WHG family of funds. Performance in her flagship large-cap value fund is up about 14% this year, and for the past five years it has delivered 16.3% a year on average. We'll let her explain why she now likes software companies and has been reducing exposure to Big Oil.

Right now, we think no, because it appears the policymakers are going to provide for a workout. It could take two years to work out, and the economy could stay slow during that time. But unemployment isn't a particular problem, and for that reason we probably will escape a recession.

...What about the oil price?

We've been involved in the oil trade for a long time, and we are not overweight oil anymore. We are shifting our emphasis to natural-gas companies. Our big overweight now, and I hesitate to say it because everybody else is saying it too, is in technology. The Russell 1000 index only has 3% or 4% in technology, but we have about 15% or 16% in technology.

Oh no. I definitely have to see the whites of their eyes. As one mentor of mine, Charlie O'Hay, told me early on, it is easier to pick the anvil up off the ground than it is to catch it in mid air. I can afford to wait and see what happens.

Nothing else appeals to you besides technology?

Not right now.

...What's the best-case scenario?

We have a 5% probability that everything is just wonderful. Somebody always has to remind us this is a possibility. But in that scenario, interest rates move up very sharply and Fed funds have to be moved up to 7%, because we never slowed down, and the return on stocks is zero to 5% because we assume a contraction in the P/E because of interest rates and inflation.